Product innovation in durable goods monopoly with partial physical obsolescence

Abstract

In the literature on planned obsolescence, it has always been assumed that the durable goods monopolist is able to limit the durability of the whole of the product. However, usually it is a component of the product rather than the whole unit that becomes physically obsolete. In this paper, we analyze R&D incentives of a durable goods monopolist when he is able to engage in partial physical obsolescence. We showed that under these circumstances competition in component goods market causes inefficient R&D decisions in the primary market.